Blackstone, Patria Closer to Buying Brazil Gafisa Unit

Talks between Brazilian homebuilder Gafisa SA and U.S.-based financial advisory firm Blackstone Group and its Brazilian partner Patria Investimentos over the sale of high-end residential subsidiary Alphaville Urbanismo are advancing and a deal could be announced soon, according to a person familiar with the negotiations.

Alphaville Urbanismo, which develops planned neighborhoods and operates in more than 20 Brazilian states, will likely be sold for some 2 billion Brazilian reais ($948 million), the person added.

Gafisa acknowledged talks with Blackstone and Patria, among other potential buyers, in a regulatory filing last week, following reports by the local press.

In 2010, Blackstone bought a stake in Patria Investimentos, which was an early player in the private equity market in Brazil. Currently, Patria offers investment management services, including private equity and real estate investment funds, as well as corporate consulting.

Negotiations over Alphaville continued to advance this week and the companies are now discussing contract terms, according to the same person. Spokespeople for Gafisa, Blackstone and Patria declined to comment for this article.

In September, Gafisa made public the fact that it was studying “strategic options” for Alphaville. Such options could include a sale or a primary shares offering.

Gafisa, one of Brazil’s largest homebuilding companies, acquired a 60% stake in Aphaville Urbanismo in 2006 and increased its share to 80% in 2010. The company has held talks with Alphapar, Alphaville’s founder, about the purchase of the remaining 20% stake, but the two firms haven’t yet come to an agreement and the process has been submitted to arbitration. It isn’t clear whether Gafisa will be able to resolve the conflict with its Alphaville partner before the sale.

The sale process for Alphaville has attracted well-known names in the real estate business, such as U.S. magnate Sam Zell’s Equity International, but they have been outbid by Blackstone and Patria, the person confirmed. Equity International declined to comment.

“Shares of Gafisa could initially go up, once the sale is announced,” said Joao Pedro Brugger, an analyst at Brazil’s Leme Investimentos. “But initial relief could soon diminish as Gafisa will then lose a lucrative unit,” Brugger said, adding he isn’t currently a shareholder in Gafisa.

Gafisa’s shares soared following reports of the possible Alphaville sale but are still down 17.2% year-to-date. On Tuesday, the company’s shares were 2.5% lower on the day, trading at BRL3.91 each.

Gafisa had a net operating revenue of BRL668.59 million in the first quarter, down 20% on a year earlier. Alphaville represented 24% of its revenue. Gafisa also posted a loss of BRL55.47 million in the quarter, while Aphaville recorded net income of BRL28.87 million, up 34%. Gafisa’s net debt stood at BRL2.5 billion at the end of the first quarter.